Investors should search for growth in ageing population scenario, PIMCO
Over the medium to longer term, the demographics of ageing populations are likely to collide with rising and unsustainable public sector debt levels in many areas of the world, warned Mark R. Kiesel, global head of the corporate bond portfolio management at Pimco.
According to Kiesel, persistent and chronic fiscal deficits in several developed economies could reach the point where austerity, spending cuts and tax hikes may become inevitable.
“As a result of these significant, and increasingly structural, impediments to global growth, central banks around the world have implemented a comprehensive and aggressive program of unconventional monetary policy measures and stimulus, resulting in an unprecedented expansion of balance sheets,” he said.
But monetary policy will likely not provide a long-term solution to what are ultimately fiscal, political and structural issues.
“While near-term cyclical challenges may justify increasing activism by global central banks, government debt levels for many developed markets need to be addressed to reduce growing structural barriers to longer-term economic growth,” Kiesel said.
Meanwhile, increasingly dysfunctional political processes in the US and elsewhere have resulted in politicians kicking the can down the road in order to avoid addressing longer-term structural barriers to growth.
According to Pimco, the heightened polarization of the US political system has now reached a tipping point where many would argue the American system of government has lost effectiveness and its ability to function productively for its constituents.
In this scenario, investors should go for growth. Despite headwinds and a sub-par economic growth outlook, the US firm sees good investment opportunities.
“Investors should focus on bottom-up research in specific sectors and companies that can grow significantly faster than their economies. In the US, the energy and housing-related industries offer investors these opportunities. In emerging markets, investors looking for growth should consider Asia gas distribution and gaming, as well as Latin America banks,” he said.